I’ve been in Hawaii for about a month and it’s interesting. Oahu and Waikiki are very quiet. There are zero tour busses trundling around Diamond Head. Traffic on Waikiki roads, sidewalks, and beaches is exceptionally light. I would estimate that roughly a third to half of Waikiki businesses are temporarily or permanently shut. The restaurant survival has been better outside the tourist areas (because like everyone else, pandemic or not, people still needed to eat).
It got me thinking. Back in 2015, I wrote a story covering Hawaii’s release of a report by the Department of Business, Economic Development and Tourism on real estate. That report said that of all home sales to mainland US residents, 10.5 percent were Texans, second only to California.
The report also noted that while a lot of people purchase their initial second Hawaiian home on the outer islands, a lot of them purchase their second Hawaiian home on Oahu – because the outer islands are boring for longer stays.
I was reminded of that during this trip. For those considering a Hawaiian second home, now is a good time to research. Come to Oahu. It’s so quiet now that it’s a little like the outer islands are normally. If staying here before the full post-COVID resurgence strikes you as a little slow, you know to skip the initial mistake of buying on the outer islands – which are like this all the time.
How Have Prices Held Up?
Like most of the country, prices in Hawaii are a story of two markets.
The single-family market continues increase in price. When I last did a market update in 2017, the median sales price for Oahu was $755,000 while so far in 2020, the median is $822,000 – an increase of 8.9 percent. The number of single-family sales has also dropped due to a lack of inventory. In Honolulu, single-family inventory is down 24.5 percent year to date.
On the condo front – what a lot of second homeowners buy – things are also similar to the rest of the nation. But not for the same reasons.
The number of sales has dropped considerably since 2017 due to a lack of inventory. However, unlike some real estate markets, Hawaii has seen new construction unit availability peter out in the past few years. This has added to a general pull-back in resale listings seen in many places – in Honolulu, condo inventory is down 4.4 percent year to date.
As for median prices, they’re up 6.17 percent since 2017. Not as good as single-family appreciation during the same period, but part of that has been the increased popularity of single-family over condo due to pandemic fears. Another reason median condo prices have lagged, is again, that lack of newer, more expensive units have tamped down prices – it partly comes down to the mix of product for sale.
Note: Both single-family and condo year-to-date sales volumes are only reflective of sales through the first six days of December. Full year sales for single-family will be more in line with 2019 volumes (down 1.4 percent so far) while condo sales volumes are down 19 percent year to date.
No Change in Sight
One way to influence prices is to increase new construction. Unfortunately, that’s not happening. From 2015 through 2018, the state averaged between 4,125 and 5,248 residential building permits. In 2019 it dropped to 3,560 and the first three quarters of 2020 reported just 1,916 permits issued (likely ending 2020 around 2,500 permits) the lowest number since at least 1982.
While single-family permits are down so far in 2020, the condo market has cratered. It was down 47 percent between 2018-2019 and is on track to be down a further 52 percent in 2020 – the first three quarters reported just 363 condo permits issued. In all of 2018 there were 2,212, and there were just 1,168 in 2019, in 2020 there were 0. Meanwhile, single-family permits are down 14.3 percent so far in 2020 after an 8 percent drop in 2019.
So even if resale listings increase, a lack of new construction will keep inventories low for a while.
Feeling The Pinch?
There is a nationwide fear of an eviction tidal wave once COVID-19 moratoriums are lifted. This is felt particularly hard in Hawaii where tourism is the number one industry hit by COVID-19. But like the rest of the nation, the effects are expected to be felt in the rental market more than the owner market.
Another indicator of future trouble is the number of bankruptcies. So far, Hawaii has reported an 8.2 percent increase in bankruptcies in 2020. Of course, this is only reflective of the local residents. A bankruptcy in another state that requires a sale of Hawaiian property would not be listed in Hawaii.
But still, the bankruptcy news from Hawaii is good considering the unemployment picture from COVID-19.
A Free House in Hawaii?
You read this far, so here’s the treat. Diamond Head is one of the toniest areas on Oahu – Black Point and Portlock probably out-Ritzy it.
Back in January, a tenant was served with eviction. Their reaction was to set fire to the house that eventually engulfed six homes (killing the arsonist and landlord). That burned-out 55 x 100-foot lot is now for sale for $1.45 million. The parcel is zoned to support a single-family or duplex up to 30 feet tall. Spend a million-ish building a duplex and sell the ground-floor unit for $2.5-ish million. Your upper unit has ocean views out the back and in-your-face Diamond Head views out the front of the house.
This is not far-fetched. Assessed values of surrounding properties average around $2 million – and we all know how far off assessed values are for most taxing bodies. One home was sold in 2011 for $2.1 million and only has an assessed value today of $2.2 million – meanwhile, median prices have gone up 43 percent islandwide.
The only problem is the $2.5 million to buy and build the duplex until you can sell the lower unit. It’s always something, right?